Page:Encyclopædia Britannica, Ninth Edition, v. 4.djvu/55

systems of book-keeping are practically applied, so as to enable any one, without difficulty, to acquire a thorough

knowledge of the science.

The questions to which a satisfactory system of book keeping gives the trader ready and conclusive answers are such as relate 1. To the extent to which his capital and credit will entitle him to transact business; 2. To the assurance he has that all his obligations are honestly ful filled ; 3. To the ascertainment of the success or failure of his commercial dealings, and the position of his affairs from time to time.

There are three recognized systems of book-keeping, namely, by "single entry," "double entry," and the "mixed method."

I. Single Entry.—This system is denoted by its name, transactions being posted singly, or only once, in the ledger. Three books are generally kept the cash book, day book, and ledger, although the first-named is not essential, the cash entries being passed through the day book. Its only use is to check the balance of cash in hand. In the day book are entered daily all the purchases and sales, whether for cash or credit ; and all the credit entries arc then transferred to accounts opened in the ledger, that is, all goods sold on credit are charged against the customers, and what are purchased are carried to the credit of parties supplying them. In the same way, when cash is received from a customer for goods sold on credit, it is posted to his account, and the reverse entry is made when a trader pays for the goods he has bought. Thus it will be seen that only personal accounts are entered in the ledger.

To frame a balance sheet, or state of affairs, on this system, the book-keeper brings down the balances due by customers to him, also his stock of goods as valued, and the cash he may have in hand, on the left-hand side of the sheet ; whilst on the right-hand side he enters the balances still due by him for goods supplied, or money lent to him, and the capital, if any, with which he commenced busi ness. The difference between the amounts of the two columns is either profit or loss ; if profit, the merchant s capital is increased to that extent, and if loss, then he is so much the poorer.

The following skeleton balance sheet will give a better idea of the working and ultimate results of the system:—

Balance Sheet by Single Entry. Assets. To Sundry Customers for Goods sold, per List ,, Goods in Stock, per Inventory and Valuation.. s. d. 216 10 314 9 6 Liabilities. By sundry Tradesmen for Goods supplied, per List. , , Capital put into the Business s. d. 184 7 8 300 . Cash in liand 349 , , Profit on Business to date 484 7 8 49 16 7 531: 4 3 534 4 3

It will be observed that as the assets exceed the liabili ties (including capital) by 49, 16s. 7d., that sum, being profit, must be added to capital ; if, in the next or following years, any loss should emerge, as a matter of course such deficiency must be deducted from the trader s capital The advantages of single entry are simplicity and easy adaptation to small retail trades, as the ledger contains only outstanding debts due to or by the trader. The disadvantage is in the difficulty of ascertaining the profits or losses on various goods, or on the several depart ments of a business.

II. Double Entry.—It is now universally admitted that this system is the best adapted for heavy, responsible, or speculative trades, for foreign trade especially, and for extensive mercantile concerns. As its name implies, it so far differs from the system already described, that every transaction must be recorded doubly in the ledger, that is to say, accounts must be opened in that book, to which ail entries in the subsidiary books, after being journalized, are twice carried, to the debit of one account and the credit of another. To illustrate this, let us assume that a merchant speculates in cotton, and purchases so many bales from John Bevan and Co. upon credit he debits " Cotton account," and credits "John Bevan and Co." He does not pay for it in cash, but gives his bill at three months for the amount ; John Bevan and Co. are debited with the bill, and " Bills Payable " are credited. He then sells the whole lot of cotton for cash to Cairns, Brown, and Co., debiting " Cash " and crediting " Cotton account," Lastly, he retires or pays the bill granted to John Bevan and Co., debits " Bills Payable," and credits " Cash." We will now put all these transactions into a "journal," posting there from to a "ledger," and so illustrate book-keeping by double entry.

Dates. JOURNAL. Dr. Or. 1875. June 4 Cotton Account s. d. 2349 s. d. To John Bevan and Co., Charleston 2349 For Bales, @ , ex " Mary Jane." June 6 John Bevan and Co . 2349 To Bills Payable 2349 For our acceptance, No. 136, @<3m/., due 6/9 Sept., at County Bank. June 17 , Cash Account . . 3200 To Cotton Account 3200 For Bales, , sold to Cairns, Brown, and Co., Manchester. Sept. 9 Bills Payable.... 2349 To Cash 2349 For Bill, No. 136, retired at County Bank. Sept. 30 Cotton Account 851 To Profit and Loss Account . 851 For Profit on Cotton, ex "Mary Jane." 11,098 11,098 LEDGER ACCOUNTS. Dr. COTTON ACCOUNT. Cr. 1875. June 4 Sept. 30 To J. Bevan and Co., for Bales, ex Marv Jane " s. d. 23-19 851 1875. June 17 By Cash for Bales, sold to Cairns, ) Brown, and Co K. d. 3200 ,, Profit and Los 5 , for fain 3200

Dr. Jonx UK VAN AND Co., Charleston. Cr. 1875. June 6 To Bills payable, No. 136, due 6/9 | Sept, County Bank ] s. d. 2349 1875. June 4 By Cotton, per "Marv Jane," Bales, @ s. d. 2349 Dr. BILLS PAYABLE. Cr. 1875. Sept. 9 To Cash, No. 136, retired s. d. 2349 1875. June 6 By John Bevan and Co., No. 136, due ) 6/9 Sept., County Bank f s. d. 2349 Dr. CASH ACCOUNT. Cr. 1875. June 17 To Cotton Account, Cairns, Brown, ) and Co j s. d. 3200 1875. Sept. 9 By Bills payable, No. 13(3, retired at County Bank s. d. 2349 851 Balance .... 3200 Dr. PROFIT AND Loss. Cr. 1875. 1 Sept. 30 By Gain on Cotton, ex "Mary Jano".. s. d. 851 >> BALANCE SHEET, 30th September, 1S75. Cr. To Cash in hand s. d. 851 By P and L s. d. 851